Indonesia Relaxes Foreign Ownership Rules For Insurance Companies.

Legal News & Analysis - Asia Pacific - Indonesia - Insurance & Reinsurance - FDI

2 April, 2020

 

The Government of Indonesia (“GOI”) has issued Government Regulation No. 3 of 2020 (“GR 3”), which amends Government Regulation No. 14 of 2018 regarding Foreign Ownership in Insurance-Related Companies (“GR 14”).

 

GR 3 relaxes foreign ownership rules for insurance-related companies in Indonesia.  

 

Foreign Ownership for Insurance Companies Under GR 14

 

GR 14 limits foreign ownership in an insurance company to 80%. This statutory limitation, however, is not applicable to publicly listed insurance companies.

 

GR 14 provides that foreign ownership is calculated by:

 

  • Direct participation in the insurance company.
  • Transactions on the stock exchange.
  • Participation in the local shareholder(s) of the insurance company through direct participation or through the stock exchange.

 

GR 14 provides that insurance companies with more than 80% foreign ownership at the time GR 14 was issued:

 

  • Are exempted from the foreign ownership limitation as stipulated in GR 14.
  • Are not allowed to increase their foreign ownership percentage.   

 

If insurance companies with a foreign shareholding above the 80% limitation as discussed above increase their issued and paid-up capital, this capital increase must meet one of the following requirements:

 

  • At least 20% subscribed by Indonesian individuals and/or Indonesian business entities.
  • At least 20% is offered through public offering. 

 

New Rules Under GR 3

 

With the issuance of GR 3, the Government has relaxed the foreign ownership cap for insurance-related companies. Previously, under GR 14, foreign shareholder(s) could subscribe newly issued shares only up to 80%, since 20% was statutorily allocated to Indonesian individuals and/or Indonesian business entities and/or offered through public offering.

 

Thus, a foreign shareholder in an insurance company that had its share ownership of more than 80% grandfathered under GR 14 would experience a decrease in ownership if the company increased its capital.

 

GR 3 allows a foreign shareholder to maintain its shareholding percentage if the shareholder already owns more than 80% of shares. The remaining unsubscribed shares must be subscribed by Indonesian individuals and/or Indonesian business entities. If no Indonesian individuals and/or Indonesian business entities subscribe the newly issued shares, the capital increase shall be conducted through the initial public offering process.

 

Thus, a foreign shareholder with more than 80% ownership in an insurance-related company will not experience an erosion of their ownership percentage if the company increases its capital.    

 

Insurance companies that fail to comply with the provisions of GR 3 are subject to sanctions in the form of:

 

  1. written warning;
  2. limitation of business activity, either partially or wholly;
  3. revocation of business license; and/or
  4. administrative fine.

 

SSEK -Regulation Of Insurance And Reinsurance Contracts In Indonesia. - See more at: http://www.conventuslaw.com/report/regulation-of-insurance-and-reinsurance-contracts/#sthash.CfL4zYTl.dpuf

 

For Further Information, please contact:
 
Ira A. EddymurthySoewito Suhardiman Eddymurthy Kardono
iraeddymurthy@ssek.com